Professional Documents
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Malaysian Code On Corporate Governance 2017
Malaysian Code On Corporate Governance 2017
Malaysian Code On Corporate Governance 2017
CORPORATE GOVERNANCE
MALAYSIAN CODE ON
CORPORATE GOVERNANCE
Securities Commission Malaysia
3 Persiaran Bukit Kiara
Bukit Kiara
50490 Kuala Lumpur
Tel: +6036204 8000 Fax: +6036201 5078
COPYRIGHT
2017 Securities Commission Malaysia
PRINCIPLE A 12
Board Leadership and Effectiveness
Board Responsibilities 12
Board Composition 22
Remuneration 30
PRINCIPLE B 34
Effective Audit and Risk Management
Audit Committee 34
Risk Management and Internal Control Framework 39
PRINCIPLE C 44
Integrity in Corporate Reporting and
Meaningful Relationship with Stakeholders
Communication with Stakeholders 44
Conduct of General Meetings 47
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1
Corporate governance as defined in the High Level Finance Committee Report (1999).
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MALAYSIAN CODE ON
THE
CORPORATE GOVERNANCE
2.2 The MCCG reflects global principles and internationally recognised practices
of corporate governance which are above and beyond the minimum required
by statute, regulations or those prescribed by Bursa Malaysia.
2.3 The MCCG permits a more constructive and flexible response to raise standards
of corporate governance. It recognises that there are aspects of corporate
governance where statutory regulation is necessary and others where self-
regulation complemented by market regulation is more appropriate.
2.4 The MCCG was reviewed in 2007 and 2012 to ensure that it remains relevant
and is aligned with globally recognised best practices and standards.
2.5 In 2017, the MCCG, which supercedes its earlier edition, takes on a new
approach to promote greater internalisation of corporate governance culture.
Key features of the new approach are listed in Diagram 1.
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Diagram 1
These companies should continue applying the practices even if they fall out
of the FTSE Bursa Malaysia Top 100 Index or their market capitalisation
decreases below the prescribed threshold. Other listed companies may
consider adopting the practices identified for Large Companies if they aspire
to achieve greater excellence in corporate governance.
2.7 While the MCCG is targeted at listed companies, non-listed entities including
state-owned enterprises, small and medium enterprises (SMEs) and licensed
intermediaries are encouraged to embrace this code on corporate governance.
These non-listed entities should consider applying the practices in the MCCG
to enhance their accountability, transparency and sustainability.
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COMPREHEND, APPLY
AND REPORT
Why CARE?
3.1 Comprehand, Apply and Report or CARE encourages companies to clearly
identify the thought processes involved in practising good corporate
governance including providing fair and meaningful explanation of how
the company has applied the practices.
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3.2 CARE aims to reinforce mutual trust between companies and their
stakeholders by promoting meaningful disclosures that will be relied
upon by stakeholders to have effective engagements with the company.
It also promotes a culture of openness and mutual respect that benefits
both the company and its stakeholders.
3.3 CARE will help generate greater interest in corporate governance best
practices, facilitate assessments and stimulate conversations on corporate
governance. Collectively, these outcomes will raise the standard of
corporate governance culture of the market overall.
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Comprehend
4.1.2 The principles of the MCCG and the intended outcomes of the
practices.
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The board and management should play their part by, among others:
2
Corporate Disclosure Guide, Sustainability Reporting Guide, Statement on Risk Management and
Internal Controls Guidelines for Directors and Listed Issuers, and other related documents.
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Apply
5.1 Applying the principles and practices of the MCCG is not merely a matter
of compliance in form with a set of rules. It is about meaningful application
in substance of good corporate governance practices. This involves a
mindset and culture change, moving away from a box-ticking approach
to corporate governance.
5.2 To facilitate this change, the MCCG adopts the apply or explain an
alternative approach, which is meant to promote a more meaningful
application of good corporate governance practices.
5.3 Under this new approach, boards should apply the practices by taking
into account the environment that their companies operate in, size and
complexity, and the nature of risks and challenges faced.
5.4 If the board finds that it is unable to implement any of the MCCG
practices, the board should apply a suitable alternative practice to meet
the Intended Outcome. For Large Companies, the board is also
expected to disclose the measures they have taken or intend to take to
enable them to adopt the MCCG Practice(s), and the timeframe required.
5.5 The Guidance in the MCCG explains how the practices may be applied
to achieve the Intended Outcome. The board should do its best to
adhere to the Guidance when implementing the MCCG practices.
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Report
6.4 Companies are strongly encouraged to adopt the Step Up practice(s) and
when they do, to disclose the application of these practices to demonstrate
their commitment to the higher standards of corporate governance.
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STRUCTURE
Principles
The MCCG is based on three key principles of good corporate governance, which
are
Intended Outcome
The Intended Outcome provides companies with the line of sight on what they
will achieve through the practices.
Practices
Practices are actions, procedures, or processes which companies are expected to
adopt to achieve the Intended Outcome.
The Practices in the MCCG were crafted taking into consideration the existing
requirement in the law, Bursa Malaysia Listing Requirements, different sizes and
complexities of Malaysian companies and global developments in corporate
governance best practices.
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Guidance
The Guidance that follows each Practice serves to assist companies in applying the
Practice to achieve the Intended Outcome.
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PRINCIPLE A
BOARD LEADERSHIP
AND EFFECTIVENESS
I. Board Responsibilities
The board is collectively responsible for the long-term success of a company and the
delivery of sustainable value to its stakeholders. In discharging its fiduciary duties and
leadership functions, it is imperative for the board to govern and set the strategic
direction of the company while exercising oversight on management. The board
plays a critical role in setting the appropriate tone at the top, providing thought
leadership and championing good governance and ethical practices throughout the
company.
While the general roles and responsibilities of boards are well founded, the
expectations on directors have evolved significantly owing to changes in the
corporate landscape. Directors are now expected to exercise greater vigilance and
professional scepticism in understanding and shaping the strategic direction of the
company.
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Intended Outcome
Practice
1.1 The board should set the companys strategic aims, ensure that the necessary
resources are in place for the company to meet its objectives and review
management performance. The board should set the companys values
and standards, and ensure that its obligations to its shareholders and other
stakeholders are understood and met.
1.2 A Chairman of the board who is responsible for instilling good corporate
governance practices, leadership and effectiveness of the board is appointed.
1.3 The positions of Chairman and CEO are held by different individuals.
1.5 Directors receive meeting materials, which are complete and accurate within
a reasonable period prior to the meeting. Upon conclusion of the meeting,
the minutes are circulated in a timely manner.
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Guidance
1.1 All directors should objectively discharge their duties and responsibilities at all
times as fiduciaries in the interests of the company. Every director is required
to keep abreast of his responsibilities as a director and of the conduct, business
activities and development of the company.
To enable the board to discharge its responsibilities in meeting the goals and
objectives of the company, the board should, among others
set the risk appetite within which the board expects management
to operate and ensure that there is an appropriate risk management
framework to identify, analyse, evaluate, manage and monitor
significant financial and non-financial risks;
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ensure that senior management has the necessary skills and experience,
and there are measures in place to provide for the orderly succession of
board and senior management;
providing leadership for the board so that the board can perform its
responsibilities effectively;
setting the board agenda and ensuring that board members receive
complete and accurate information in a timely manner;
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1.3 Separation of the positions of the Chairman and CEO promotes accountability
and facilitates division of responsibilities between them. In this regard, no
one individual can influence boards discussions and decision-making. The
responsibilities of the Chairman should include leading the board in its
collective oversight of management, while the CEO focuses on the business
and day-to-day management of the company. This division should be clearly
defined in the board charter.
1.4 The responsibility of the modern day Company Secretary has evolved
from merely advising on administrative matters to now advising boards on
governance matters. The Company Secretary through the Chairman plays an
important role in good governance by helping the board and its committees
function effectively and in accordance with their terms of reference and best
practices.
The roles and responsibilities of a Company Secretary include, but are not
limited to the following:
Manage all board and committee meeting logistics, attend and record
minutes of all board and committee meetings and facilitate board
communications;
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1.5 To facilitate robust board discussions, the Chairman together with the
Company Secretary should ensure that directors are provided with sufficient
information and time to prepare for board meetings. The meeting materials
should be circulated at least five business days in advance of the board
meeting.
All board members should ensure that the minutes of meetings accurately
reflect the deliberations and decisions of the board, including whether any
director abstained from voting or deliberating on a particular matter.
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Intended Outcome
Practice
2.1 The board has a board charter which is periodically reviewed and published
on the companys website. The board charter clearly identifies
Guidance
2.1 In establishing a board charter, it is important for the board to set out the
key values, principles and ethos of the company, as policies and strategy
development are based on these considerations. The board charter should set
out among others the governance structure, authority and terms of reference
of the board, its committees and management.
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While the board may appropriately delegate its authority to board committees
or management, it should not abdicate its responsibility and should at all
times exercise collective oversight of the board committees and management.
The board should not delegate matters to a committee or management
to an extent that would significantly hinder or reduce the boards ability to
discharge its functions. Where the board delegates any of its responsibilities,
it is encouraged to disclose the delegation of authority. Regular review of the
division of responsibilities should be conducted to ensure that the company is
able to adapt to changing business circumstances.
For individual directors, the board charter should outline what is expected
from them in terms of their commitment, roles and responsibilities as board
members. The charter also assists the board in the assessment of its own
performance and that of its individual directors. Where the board appoints a
Senior Independent Director (SID), the role of the SID should also be explained
in the board charter. This may include the SID acting as
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Intended Outcome
Practice
3.1 The board establishes a Code of Conduct and Ethics for the company, and
together with management implements its policies and procedures, which
include managing conflicts of interest, preventing the abuse of power,
corruption, insider trading and money laundering.
3.2 The board establishes, reviews and together with management implements
policies and procedures on whistleblowing.
Guidance
3.1 The board has the responsibility to set the tone and standards of the company
through the Code of Conduct and Ethics. The Code of Conduct and Ethics
should articulate acceptable practices and guide the behaviour of directors,
management and employees. The policies of the Code of Conduct and Ethics
should be integrated into company-wide management practices and be
periodically reviewed.
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The Code of Conduct and Ethics should describe measures put in place to
The board should ensure that its whistleblowing policies set out avenues
where legitimate concerns can be objectively investigated and addressed.
Individuals should be able to raise concerns about illegal, unethical or
questionable practices in confidence and without the risk of reprisal.
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PRINCIPLE A
BOARD LEADERSHIP
AND EFFECTIVENESS
Intended Outcome
Practice
4.1 At least half of the board comprises independent directors. For Large
Companies, the board comprises a majority independent directors.
4.2 The tenure of an independent director does not exceed a cumulative term
limit of nine years. Upon completion of the nine years, an independent
director may continue to serve on the board as a non-independent director.
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Step Up
4.3 The board has a policy which limits the tenure of its independent
directors to nine years.
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4.5 The board discloses in its annual report the companys policies on gender
diversity, its targets and measures to meet those targets. For Large
Companies, the board must have at least 30% women directors.
4.6 In identifying candidates for appointment of directors, the board does not
solely rely on recommendations from existing board members, management
or major shareholders. The board utilises independent sources to identify
suitably qualified candidates.
Guidance
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For Practice 4.2, companies should use the two-tier voting process in seeking
annual shareholders approval to retain an Independent Director beyond 12
years.
Under the two-tier voting process, shareholders votes will be cast in the
following manner at the same shareholders meeting:
For the purposes of Practice 4.2 , Large Shareholder means a person who
is entitled to exercise, or control the exercise of, not less than 33% of
the voting shares in the company;
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The decision for the above resolution is determined based on the vote of Tier 1
and a simple majority of Tier 2. If there is more than one Large Shareholder,
a simple majority of votes determine the outcome of the Tier 1 vote.
The resolution is deemed successful if both Tier 1 and Tier 2 votes support the
resolution.
However, the resolution is deemed to be defeated where the vote between the
two tiers differs or where Tier 1 voter(s) abstained from voting.
4.4 A diverse board can offer greater depth and breadth compared to non-diverse
boards. As such, director candidates should be sourced from a diverse pool.
In pursuing its gender diversity agenda, each company should take steps
to ensure that women candidates are sought in its recruitment exercise for
board and senior management positions.
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4.5 While large companies are required to have 30% women directors, other
boards should also work towards achieving this target. Womens participation
in decision-making positions should not be focused on board positions alone
but also be broadened to include women in senior management, as the same
benefits apply. Diversity, when extended to senior management, will also
serve as a talent pipeline for board candidacy.
4.6 The board should use a variety of approaches and sources to ensure that it
is able to identify the most suitable candidates. This may include sourcing
from a directors registry and open advertisements or the use of independent
search firms.
The company should disclose in its annual report how candidates for non-
executive director positions were sourced including whether such candidates
were recommended by the existing board members, management or major
shareholders.
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Intended Outcome
Practice
5.1 The board should undertake a formal and objective annual evaluation to
determine the effectiveness of the board, its committees and each individual
director. The board should disclose how the assessment was carried out and
its outcome.
Guidance
3
Independence in this context means no connection with the company, directors or major
shareholders.
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Will and ability to critically challenge and ask the right questions;
Character and integrity in dealing with potential conflict of interest
situations;
Commitment to serve the company, due diligence and integrity; and
Confidence to stand up for a point of view.
How the evaluation was conducted, the criteria used such as the
assessment of fit and properness, contribution and performance,
calibre and personality of directors4;
Whether an independent expert was engaged, or was it internally
facilitated;
Key strengths and/or weaknesses that were identified from the
evaluation; and
Steps or enhancements proposed to be undertaken to mitigate or
address the weaknesses identified.
4
Refer to Bursa Malaysias Corporate Governance Guide.
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PRINCIPLE A
BOARD LEADERSHIP
AND EFFECTIVENESS
III. Remuneration
Directors remuneration, which is well structured, clearly linked to the strategic
objectives of a company, and which rewards contribution to the long-term success
of the company is important in promoting business stability and growth. However,
pay policies which do not appropriately link directors remuneration to company
strategy and performance can diminish shareholders returns, weaken corporate
governance and reduce public confidence in business.
Intended Outcome
Practice
6.1 The board has in place policies and procedures to determine the remuneration
of directors and senior management, which takes into account the demands,
complexities and performance of the company as well as skills and experience
required. The policies and procedures are periodically reviewed and made
available on the companys website.
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6.2 The board has a Remuneration Committee to implement its policies and
procedures on remuneration including reviewing and recommending matters
relating to the remuneration of board and senior management.
The Committee has written Terms of Reference which deals with its authority
and duties and these Terms are disclosed on the companys website.
Guidance
6.1 Fair remuneration is critical to attract, retain and motivate directors and
senior management. The remuneration package should take into account the
complexity of the companys business and the individuals responsibilities. In
addition, the remuneration should also be aligned with the business strategy
and long-term objectives of the company.
The board should also ensure that the remuneration and incentives for
Independent Directors do not conflict with their obligation to bring objectivity
and independent judgment on matters discussed at board meetings.
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Intended Outcome
Practice
7.1 There is detailed disclosure on named basis for the remuneration of individual
directors. The remuneration breakdown of individual directors includes fees,
salary, bonus, benefits in-kind and other emoluments.
7.2 The board discloses on a named basis the top five senior managements
remuneration component including salary, bonus, benefits in-kind and other
emoluments in bands of RM50,000.
Step Up
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Guidance
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PRINCIPLE B
EFFECTIVE AUDIT
AND RISK MANAGEMENT
I. Audit Committee
An effective Audit Committee can bring transparency, focus and independent
judgment needed to oversee the financial reporting process. However, the ultimate
responsibility for a companys financial reporting process rests with the full board.
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Intended Outcome
Practice
8.1 The Chairman of the Audit Committee is not the Chairman of the board.
8.2 The Audit Committee has a policy that requires a former key audit partner5 to
observe a cooling-off period of at least two years before being appointed as
a member of the Audit Committee.
8.3 The Audit Committee has policies and procedures to assess the suitability,
objectivity and independence of the external auditor.
Step Up
5
The engagement partner, the individual responsible for the engagement of quality control review,
and other audit partners, if any, on the engagement team who make key decisions or judgments
on significant matters with respect to the audit of the financial statements on which the auditor will
express an opinion.
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8.5 Collectively, the Audit Committee should possess a wide range of necessary
skills to discharge its duties. All members should be financially literate and
are able to understand matters under the purview of the Audit Committee
including the financial reporting process.
Guidance
8.1 The Chairman of the Audit Committee is responsible for ensuring the overall
effectiveness and independence of the Committee. Having the positions of
Chairman of the board and Chairman of the Audit Committee assumed by
the same person may impair objectivity of the boards review of the Audit
Committees findings and recommendations.
The Chairman of the Audit Committee together with other members of the
Audit Committee should ensure among others that
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8.2 The cooling off period safeguards the independence of the audit by avoiding
the potential threats which may arise when a former key audit partner is in a
position to exert significant influence over the audit and preparation of the
companys financial statements.
the nature and extent of the non-audit services rendered and the
appropriateness of the level of fees; and
8.5 The Audit Committee members are expected to be financially literate and
have sufficient understanding of the companys business. This would
enable them to continuously apply a critical and probing view on the
companys financial reporting process, transactions and other financial
information, and effectively challenge managements assertions on the
companys financials.
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Where there are significant matters requiring judgement, the Audit Committee
should ask probing questions to ascertain whether the financial statements
are consistent with operational and other information known.
The Audit Committee should review and provide advice on whether the
financial statements taken as a whole provide a true and fair view of the
companys financial position and performance.
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PRINCIPLE B
EFFECTIVE AUDIT
AND RISK MANAGEMENT
The board of directors is responsible for the companys risk management and internal
control systems. It should set appropriate policies on internal control and seek
assurance that the systems are functioning effectively. The board must also ensure
that the system of internal control manages risks and forms part of its corporate
culture.
Intended Outcome
9.0 Companies make informed decisions about the level of risk they want
to take and implement necessary controls to pursue their objectives.
The board is provided with reasonable assurance that adverse
impact arising from a foreseeable future event or situation on the
companys objectives is mitigated and managed.
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Practice
9.1 The board should establish an effective risk management and internal control
framework.6
9.2 The board should disclose the features of its risk management and internal
control framework, and the adequacy and effectiveness of this framework.
Step Up
Guidance
9.1 The board should determine the companys level of risk tolerance and actively
identify, assess and monitor key business risks to safeguard shareholders
investments and the companys assets. Internal controls are important
for risk management and the board should be committed to articulating,
implementing and reviewing the companys internal control framework.
6
See also Guidance 1.1.
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9.2 The board should, in its disclosure include a discussion on how key risk areas
such as finance, operations, regulatory compliance, reputation, cyber security
and sustainability were evaluated and the controls in place to mitigate or
manage those risks. In addition, it should state if the risk management
framework adopted by the company is based on an internationally recognised
risk management framework.
The board should also disclose whether it has conducted an annual review
and periodic testing of the companys internal control and risk management
framework. This should include any insights it has gained from the review and
any changes made to its internal control and risk management framework
arising from the review. Where information is commercially sensitive and may
give rise to competitive risk, disclosure in general terms is acceptable.
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Intended Outcome
Practice
10.1 The Audit Committee should ensure that the internal audit function is effective
and able to function independently.
whether internal audit personnel are free from any relationships or conflicts
of interest, which could impair their objectivity and independence;
the number of resources in the internal audit department;
name and qualification of the person responsible for internal audit; and
whether the internal audit function is carried out in accordance with a
recognised framework.
Guidance
10.1 An internal audit function helps a company to accomplish its goals by
bringing an objective and disciplined approach to evaluate and improve the
effectiveness of risk management, internal control and governance processes.
This function serves as an important source of advice for the Audit Committee
concerning areas of weaknesses or deficiencies in internal processes to
facilitate appropriate remedial measures by the company.
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Internal audit should be carried out objectively and is independent from the
management of the company and the functions which it audits. Thus, it is
essential that the person responsible for internal audit reports directly to the
Audit Committee.
In developing the scope of the internal audit function, the Audit Committee
should satisfy itself that
It is expected that the role of internal auditors will evolve and expand to
include providing advisory support on strategy. This requires internal auditors
to go beyond the execution of the internal audit plan and undertake
root-cause analysis to provide proactive strategic advice and suggest
meaningful business improvements. As such, internal auditors should
continuously keep abreast with developments in the profession, relevant
industry and regulations.
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PRINCIPLE C
INTEGRITY IN CORPORATE
REPORTING AND MEANINGFUL
RELATIONSHIP WITH
STAKEHOLDERS
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Intended Outcome
Practice
11.1 The board ensures there is effective, transparent and regular communication
with its stakeholders.
Guidance
11.1 Dialogue with stakeholders is a necessary and beneficial process as it enables
companies to understand stakeholders concerns and to take these concerns
into account when making decisions.
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11.2 An integrated report is the main report from which all other detailed
information flows; such as annual financial statements, governance and
sustainability reports. It is concise communication about how a companys
strategy, performance, governance and prospects lead to value creation. An
integrated report improves the quality of information available to investors
and promotes greater transparency and accountability on the part of the
company.
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PRINCIPLE C
INTEGRITY IN CORPORATE
REPORTING AND MEANINGFUL
RELATIONSHIP WITH STAKEHOLDERS
Shareholders should exercise their rights to ask questions, provide views and vote at
general meetings. The company should also leverage technology to facilitate greater
shareholders participation and enhance the proceedings of General Meetings.
Intended Outcome
12.0 Shareholders are able to participate, engage the board and senior
management effectively and make informed voting decisions at
General Meetings.
Practice
12.1 Notice for an Annual General Meeting should be given to the shareholders at
least 28 days prior to the meeting.
12.2 All directors attend General Meetings. The Chair of the Audit, Nominating,
Risk Management and other committees provide meaningful response to
questions addressed to them.
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12.3 Listed companies with a large number of shareholders or which have meetings
in remote locations should leverage technology to facilitate
Guidance
12.1 The board should ensure that shareholders are given sufficient notice and time
to consider the resolutions that will be discussed and decided at the General
Meeting. The notice should provide further explanation beyond the minimum
content stipulated in the listing requirements for the resolution proposed to
enable shareholders to make an informed decision in exercising their voting
rights. The notice should include details of the resolutions proposed along
with any background information and reports or recommendations that are
relevant.
12.2 Presence of all directors will provide opportunity for shareholders to effectively
engage each director. Having the chair of board subcommittees present
facilitates these conversations and allows shareholders to raise questions and
concerns directly to those responsible.
12.3 The board should take proactive measures to ensure that shareholders are
able to participate at General Meetings. In facilitating greater shareholder
participation, it is important for the company to consider leveraging technology
to facilitate electronic voting and remote shareholder participation.
7
Shareholders exercising their voting rights without being physically present at General Meetings.
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